Big Eddy Market as their gas shipped from Kamloops off the Trans Mountain pipeline. (Liam Harrap/Revelstoke Review)

Economist: Gas prices will increase with Trans Mountain pipeline expansion

Revelstokians can expect to pay three cents more per litre

  • Feb. 1, 2019 12:00 a.m.

More pipelines doesn’t mean lower prices at the pump says an economist.

“I think it’s safe to say Revelstoke will pay up to three cents more a litre just because the expansion is built,” says Robyn Allan, an independent economist and former CEO of the Insurance Corporation of British Columbia. Allan was also involved in the National Energy Board Trans Mountain Expansion Project hearing a few years ago.

“It all depends on what the cost of the project ends up being,” says Allan.

The Trans Mountain Pipeline was built in 1953 and spans 1,150 km between Edmonton, Alberta and terminates in Burnaby, B.C. In 2013, the National Energy Board approved a proposal to twin the line that would expand it’s capacity from 300,000 barrels a day to almost 900,000. Prime Minister Justin Trudeau’s government approved the project in 2016 and last August it became a crown corporation after the Liberals purchased it for $4.5 billion. It was owned prior by Kinder Morgan.

READ MORE: Federal court quashes approval of Trans Mountain pipeline expansion

The parliamentary budget officer recently announced that the Liberal government may have overpaid for the pipeline by up to $1 billion.

Trans Mountain is the only pipeline in North America that carries both refined petroleum, such as gasoline or diesel, light/heavy crude, and processed bitumen. The process is known as “batching”, with one product following after another. The products can mix, but this mixing, known as product interface is minimized by using specific sequencing.

Where does Revelstokian petroleum come from?

Petroleum in Revelstoke either comes from Kamloops, which is supplied by Trans Mountain, or Calgary. The owner of Big Eddy Market says he gets his from Kamloops.

Roughly four per cent of product, such as gasoline and diesel in the Trans Mountain pipeline stops in Kamloops from Edmonton refineries. The refineries receive petroleum from around Alberta, including the oil sands in Fort McMurray. From Kamloops it’s shipped to Revelstoke on trucks. Over 50 per cent of products in the Trans Mountain pipeline goes to refineries in Washington State.

Some of the petroleum in Revelstoke comes from the oil sands near Fort McMurray, Alberta. (Liam Harrap/Revelstoke Review)

While the Trans Mountain expansion is officially expected to cost $7.4 billion, Allan says it will probably be more.

“Anyone that understands these kinds of projects knows it will probably be $9 to $10 billion.”

To help pay for the project and maintain the pipeline, Trans Mountain charges a toll. A toll is the price charged by a pipeline company for transportation and other services. It also provides funds for companies to recover capital, pay debts, and provide a return to investors. In 2018, the toll for using the pipeline from Edmonton to Kamloops was $1.71 per barrel.

“If it costs $7 billion to build a pipeline, you have to cover that cost. You have to pay it back and pay interest. You can only get that through charging tolls,” says Allan.

Allan says the current tolls are not high enough to pay for the expansion and will have to be raised, which will result in customers paying more at the pumps.

READ MORE: Pipeline opponents blast Trans Mountain re-approval plan

Since the expansion is for heavy crude oil to be shipped overseas, such as to Asian markets, and not refined products, like gasoline and diesel, Allan says more gasoline will not be available to British Columbians. The same amount will be shipped as before.

Allan further noted that British Columbians are going to be hit with “a double whammy”.

Not only will it cost customers more at the pump, but because Ottawa overpaid to buy Trans Mountain, taxpayers will be on the hook.

“The tolls on the existing Trans Mountain system are not going up enough this year to cover the costs of having bought it. And if those tolls are not enough to pay the interest for the money used to buy the project then that’s a shortfall. And that shortfall can only be covered by Canadians.”

While Stewart Muir, executive director of Resource Works, which is an organization that promotes the importance of B.C.’s resource sector, says it’s possible that gas prices will increase, it’s far more important to look at the larger picture.

“The benefit will be to Canada for getting fair market value, which we’re not seeing. Then in the longer term, maybe governments can use the extra revenue to lower taxes.”

Gas stations do not make most of their profit from petroleum products, but from other products/services like snacks, drinks, coffee and car washes. (Liam Harrap/Revelstoke Review)

There will be employment opportunities, maybe even for people in Revelstoke, during its construction. Muir noted there is undoubtedly Revelstokians that work in Fort McMurray and depend on oil and gas.

“You have to remember, Trans Mountain is like a highway. They don’t make oil. They don’t own the oil. They ship it. When you’re thinking who controls the price, is it the pipeline company or is it the people that own the commodity?” Asks Muir.

READ MORE: CLOVECHOCK: ‘Trans Mountain is in the interest of B.C.’s economy’

In a written email response, Trans Mountain says the expanded pipeline “is unlikely to make any impact to local fuel prices, either positively or negatively, because fuel prices are primarily driven by world oil prices.”

On Jan. 31, a barrel of crude oil was selling for $54 US. A far cry from when it was more than $100 in 2011.

They continued that the expansion “will provide a critical alternative market to Canadian crude oil shippers”.

Is there price gouging?

Gas in Revelstoke isn’t cheap.

This week, at most stations, regular gas was $1.26 per litre, except for Big Eddy Market which was $1.21. Compared with $0.88 in Edmonton, $0.93 in Calgary, $1.25 in Vancouver, and $1.27 in Fort St. John. Vancouver, along with Victoria and Montreal are the only communities in Canada with a municipal gas tax. Revelstoke does not have one.

Gas prices in B.C. and Alberta Jan. 29, 2019
Infogram

Allan says it’s likely there is price gouging, particularly in destination communities. And Revelstoke may be no different. Allan says the price of petroleum here is much higher than it should be.

“I live in Whistler and I’ve studied the numbers here as well and taken the taxes off and done basic analysis. And I know we’re being price gouged. We’re being price gouged in the lower mainland, Vancouver Island, and the same is probably happening in Revelstoke.”

In an honest market, the return on petroleum should be 10 per cent. And most petroleum companies are getting far more than that says Allan.

She says gas in Revelstoke should probably be 20 cents lower.

How do gas stations survive?

Michael Ervin, senior vice president of the Kent Group, says part of the reason gas is more expensive in Revelstoke is transportation.

“The price of getting the product to Revelstoke would be a factor. Maybe by the order of three to four cents.”

B.C.’s provincial tax is 22.3 cents per litre compared to 19.7 cents in Alberta. That’s partly why gas is cheaper in Alberta.

However, excluding the cost of transportation and tax, Revelstokians are still paying roughly 20 to 30 cents more per litre on average.

Ervin says there is a need for larger mark-ups in smaller communities, just because they aren’t selling as much petroleum.

It’s important to note that gas stations do not make most of their profit from petroleum products.

“There’s no money in gas,” says the owner of Big Eddy Market, who has owned the establishment since 1985.

To make ends meet, Big Eddy Market has had to become “a Jack of all trades”. The market has a deli counter and cafeteria that even sells pizza.

Ervin says if gas stations didn’t sell food, drinks, or even car washes, they wouldn’t survive.

Ervin says many gas stations in rural areas are individually priced by each owner. The price is set depending on what it costs to buy from wholesale and “then they apply what they believe is a reasonable mark-up.”

One name brand gas station in Revelstoke that the Review spoke with, who could not be named due to company policy that forbids employees to speak with media, says they have no control on the price of gas. It just “pops up on their till from elsewhere.”

Big Eddy Market, which is independently owned, says owning a gas station is extremely hard.

“It’s hard to compete in a place with a low population.”

He notes most of his customers are local and loyal.

“They know I am here to serve them.”


 

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